As the cannabis industry matures, executives have increasingly more access to data to analyze around how efficiently and how accurately they are fulfilling their customers’ demands. It’s paramount to success. Fail to honor your promise to your customer, and they will go elsewhere in the market. Competition is fierce.
Fortunately supply chain experts have developed an easy to understand formula called the “Perfect Order Index,” which provides a calculation and key performance indicator (KPI) that considers each key part of a company’s fulfillment system. This KPI provides an overall grade for how well you are serving your customers, while the individual components show where the system is working efficiently–or not.
The most basic Perfect Order Index assesses four primary aspects of service:
How often were orders shipped on time?
How often were orders shipped in full?
How often were orders shipped without damage?
How often did the order include proper documentation? (This figure is particularly important for cannabis wholesalers or retailers to meet state regulatory requirements.)
A more advanced figure may incorporate other factors, such as order accuracy, inventory availability, warehouse efficiency, and delivery speed.
You populate each component with a percentage obtained from company data (see more on that below). To calculate your Perfect Order Index, multiply the figures together.
For example, imagine a company has honed its shipping, fulfilling, and quality management processes extremely well, but it still has problems with paperwork. Using the basic index factors, their calculation might look like this:
On Time (95%) x In Full (98%) x Damage Free (99%) x Proper Documents (71%) = a 65% Perfect Order Index. This mediocre number alerts a manager to problems within what appeared to be a system that was humming along, at least from the On Time, In Full and Damage Free perspectives. Efficiently attaching proper invoicing, bill of ladening, and certificate of authenticity (COA) documents to each order prevent regulatory issues and swamping staff’s time rectifying issues.
To obtain your company’s Perfect Order Index, you’ll need to capture exceptions in a structured way and divide those by your total shipped orders over a period. Some companies do this at an order level, but often it is at an order line level. For on time delivery, you’ll need to capture the expected ship date versus the actual ship or receipt date. To understand and manage fill rate, you’ll first need to empower your direct sales team with accurate live and available inventory visibility or integrate your inventory management system to your marketplace or e-commerce site. Software systems, are important in facilitating this. Consistently recording defects, returns, and paperwork issues may take a bit more creativity, but once SOPs and systems are in place and followed, the data will provide significant insights.
The efforts of creating even a basic Perfect Order Index Key performance indicators (KPIs) and tracking it over time will have outsized returns. Initial buyers will re-order with confidence, knowing that the items shown for sale are truly available, and they will become lifetime customers. You’ll save labor and shipping costs by avoiding re-stocking and re-shipping product. Streamlined invoicing and documentation saves countless hours in labor and helps decrease your outstanding accounts receivables.
In addition to highlighting the value to customers, monitoring the Perfect Order Index can also help address festering frustration among employees who feel the brunt of complaints from your customers. Being mindful of employee’s wellbeing at work is especially important in today’s labor market.
Supply chain experts have been discussing Perfect Order Index for a long time, as seen in traditional supply chain publications such as Industry Week and Supply Chain Quarterly, but I have heard little about this concept in cannabis. As we continue to mature as an industry, I expect market leaders will be monitoring KPIs such as this closely. Maybe we’ll even see them mentioned in future quarterly earnings reports? One can hope.